Real GDP in 2010 is expected to grow by between 3.2% and 3.7%, and labor market conditions should improve slowly during the next several years, according to minutes of the April meeting of FOMC members and the Federal Reserve’s board of governors.
WASHINGTON—The recovery of the United States’ economy is proceeding at a moderate pace, according to minutes of a meeting between members of the Federal Open Market Committee and the board of governors of the Federal Reserve.
The group projects real gross domestic product growth during 2010 will be between 3.2% and 3.7%, slightly higher than the prediction in January. Projections for real GDP growth during 2011 and 2012 were between 3.5% and 4.5%. Participants expect real GDP growth will converge over time to an annual rate of 2.5% to 2.8% based on expected trends in the labor force and improvements in labor productivity.
Labor market conditions are expected to improve slowly during the next several years, and the unemployment rate is forecasted to decline to about 6.6% to 7.5% by the end of 2012, the groups said, according to the recently released minutes of their joint meeting held 27-28 April.
Inflation is expected to remain subdued.
Deterioration in the labor market likely is coming to an end, according to participants. Private nonfarm payroll employment increased during the first quarter of 2010, the first quarterly increase since the onset of the recession. The average workweek also rose last quarter and data from the household survey pointed to a firming in labor market conditions. The unemployment rate held steady at 9.7% throughout the first quarter, and the labor force participation rate increased during the past few months following sharp declines during the second half of last year.
The number of new job losers as a percentage of household employment continued to drop, and the fraction of workers on part-time schedules for economic reasons moved down since the end of last year. But the average duration of unemployment increased further.
Consumer spending continued to rise at a solid pace through March.
Lending and real estate
Starts of new, single-family homes increased during February and March, likely reflecting delayed projects getting under way as weather conditions improved. Home sales strengthened noticeably.
Credit quality in the commercial real-estate sector continued to deteriorate as the delinquency rate for securitized commercial mortgages increased again during March. The decline in outstanding commercial mortgage debt in the fourth quarter of last year was the largest on record. Nonetheless, indices of prices for credit default swaps on commercial mortgage-backed securities ticked up noticeably during the period, in line with the overall reduction in financial market risk premiums.
The contraction in commercial and industrial loans remained pronounced. The drop in commercial real-estate loans persisted, reflecting weak fundamentals limiting originations as well as charge-offs of existing loans.
In the business sector, prospects for nonresidential construction outside the energy sector remained weak. Commercial real-estate activity continued to fall in most parts of the country as a result of deteriorating fundamentals, including declining occupancy and rental rates and tight credit conditions. Business investment was expected to be supported by improved conditions in financial markets.
Large firms with access to capital markets appeared to be having little difficulty in obtaining credit, and in many cases they also had retained earnings with which to fund their operations and investment. However, many participants noted while financial markets had improved, bank lending was still contracting and credit remained tight for many borrowers. Smaller firms in particular reportedly continued to face substantial difficulty in obtaining bank loans. Some participants noted that many small and regional banks were vulnerable to deteriorating performance of commercial real-estate loans.